UNITED BLEACHERS LIMITED Vs. STATE OF MADRAS

JUDGEMENT

(1.) THESE cases are filed under section 12-B (1) of the Madras general Sales Tax Act. The assessee, the United Bleachers Ltd. , owns a processing factory for textiles in Mettupalyam in the Coimbatore District. Several of the spinning and weaving mills at Coimbatore forward to the assessee un-bleached yarn and cloth manufactured by their mills. They are then bleached or dyed, calendered, pressed and folded. They are thereafter packed and delivered back to the customer mills. The packing materials used, namely, brown kraft papers, hoop iron, hessian cloth, jute twine, palm mats etc. , are purchased by the assessee. In making the charges for services, the assessee included in the bill the charge for packing and the packing materials; they were not however separately shown. The following is an example of a bill issued to the customer. -----------------------------------------------------------------------Description Rate Amount----------------------------------------------------------------------- To bleaching charges for L. M. C. 21 21. 53 variety cloth 43, 240 yards. per yard 3, 839 - 8 - 3 To stitching, folding, stamping, baling charges for above folded 2 1/4 pies into 20 yards and fents. per yard 401 - 4 - 0---------------- 4, 240 - 12 - 3 or 4, 240 - 12 - 0----------------------------------------------------------------------- (Rupee four thousand two hundred and forty and annas twelve only) Rules Nos. 6541 to 6550, 6571, 6580 to 6591-23. For the years 1953-54 and 1954-55, the assessee was assessed to sales tax on a turnover representing the price of the packing materials utilised by them in their business. The turnover for the former year was ascertained to be Rs. 20, 117-4-2, while for the later year it was Rs. 65, 373-1-5. Both the Deputy Commercial Tax Officer, Mettupalyam, and, on appeal, the Commercial Tax Officer, Coimbatore North, held that the turnover was liable to assessment. On further appeal by the assessee, the Sales Tax Appellate tribunal held that, although the assessee did not deal specifically in packing materials, a portion of the profits, earned in the business of bleaching and calendering, could be legitimately attributed to the packing materials, as the transaction involved a sale thereof for consideration, and that such a sale would attract a liability to sales tax. The appeals failed. For the assessee it is contended that no sale is involved in the transfer of the packing materials to their customers, albeit it be one for consideration, as such transfer was incidental to and part of the service of packing which they had to do under the contract. It is not, however, their case that, even if the transfer of packing materials involved in the transaction amounted to a sale, they would be entitled to claim a deduction of the charge for packing under rule 5 (1) (g) (ii)of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939. Section 3 of the Madras General Sales Tax Act levies a tax on every dealer on his total turnover for each year. A dealer is a person who carries on the business of buying and selling goods. It has been held that the term "business" should be understood in the commercial sense, namely, that there should be profit motive in the venture. Section 2 (h) defines sale as a transfer of property in goods by one person to another in the course of trade or business for cash or for deferred payment of for other valuable consideration. It is the case of the assessee that no profit was made in the charges debited for the packing materials, and that there was no motive even to make a profit therein. In our opinion, the contention is based on a fallacy. The profit motive necessary to render a business one contemplated by the Act would be one embracing the whole business, and not in respect of each one of the component parts of the business. It is not necessary either that the dealer should deal specifically in that article. It is not disputed that the object with which the bleaching etc. , was undertaken by the assessee was to earn a profit. That would be sufficient to attract the tax liability on the packing materials if they were sold, although no profits were made on them as such.

(2.) THE question whether there has been a sale of the material would depend on the contract between the parties, expressed or implied. A mere contract of service, although a transfer of a movable property is involved therein, cannot by itself imply a sale. For example, in the case of a bleaching and dyeing contract, the use of the materials utilised for the purpose of bleaching or dyeing though charged for even at a profit, would not amount to a sale, for the transfer of materials would be necessary or incidental to the contract of service. But, it a person were to buy rice or salt in gunny bags, one could imply a contract to purchase the goods as packed, i. e. , along with the packing materials. In such a case, even if the seller does not intend to make a profit on the gunnies as such, there would be a sale within the meaning of the Act, as there is a profit motive in the business of selling rice or salt. THE question whether there has been a sale of packing materials would therefore depend not so much on the fact whether there was a profit motive in making the transfer of those materials, but whether there was an express or implied contract to sell them, it being sufficient that there was a profit motive for the entire business. In Varasukhi and Co. v. Province of Madras 1950 (2) STC 1; 1950 (2) MLJ 449), salt was sold in gunny bags. Salt, however, was exempt from sales tax. A question arose whether the exemption would extend to the gunny bags as well. THE learned judges held that the assessee in that case should be held to have carried on the business of buying and selling gunny bags as well, in addition to the business of buying and selling salt, and that the exemption from sales tax in respect of salt would not extend to the gunny bags sold. In Indian Leaf Tabacco development Co. Ltd. v. State of Madras the question of liability to sales tax for a turnover in respect of packing materials utilised for sale of tobacco came up for consideration. Section 4 of the Act exempted tobacco from the operation of the taxing provisions. It was held that the packing materials would not come within the scope of the exemption granted to tobacco, and the turnover in respect of them would be assessable to tax, unless the assessee had made out a case for exemption under rule 5 (1) (g) (ii) of the Madras General sales Tax (Turnover and Assessment) Rules. A similar view was taken in Mohanlal jogani Rice and Atta Mills v. State of Assam in regard to turnover in respect of gunny bags utilised in the sale of rice. THE decisions referred to above were cases in which there had been a sale of the principal article, and the question arose where the packing materials used for the delivery of the principal articles could also be held to have been sold. In such cases the express agreement between the parties was to purchase the principal article, e. g. , salt, tobacco or rice; there was no specific and separate agreement to purchase the packing materials alone. But, it could not be that the purchaser was agreeable to take the principal article alone; it is but reasonable to hold that the intention was to purchase the goods as packed, so that in the contract of sale of the principal item the sale of the packing material was implicit.

(3.) THE learned Judges of the Andhra High Court, in their decisions in Krishna and Co. , Ltd. v. State of Andhra and Hanumantha Rao v. State of Andhra did not consider in the cases before them, whether the principal contract being one for service and not for sale of any goods, there had been any agreement between the parties, express or implied, for the sale of packing materials as such. THE observations of the learned Judges would appear to imply that in their opinion what was necessary or sufficient to constitute a sale would be a transfer of movable property for consideration by a person carrying business. That view is not in consonance with the principle that a mere passing of title to goods would not amount to a sale, except when such passing of title was the result of contract, express or implied, between the parties.